Managerial Economics September 2010
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8/8/2019 Managerial Economics 8-9- Final
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Managerial Economics
September 2010
8/8/2019 Managerial Economics 8-9- Final
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Profit Maximization
` P = MC
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Shutdown Point
` P < AVCmin
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Market Supply
` Summation of all the individual Firms· Supply
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Short-Run and Long-Run Equilibrium
` Long Term Changes in Supply
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Long-run Equilibrium in Free Market
` Zero Profit Condition
` P = MC = minimum long-run AC = Zero-Profit Price
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Long-Run Industry Supply
` Law of Decreasing Marginal Returns on Limited
Resources
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Special Cases of Competitive Markets
` Constant Cost Industry
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Special Cases of Competitive Markets
` Increasing Cost Industry
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Special Cases of Competitive Markets
` Fixed Supply
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Special Cases of Competitive Markets
` Backward-Bending Supply Curve
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Equity of Markets?
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Imperfect Competition
` Individual Sellers have some measure of control over the
price of their output
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Monopoly
` One Seller
` Licensed Sectors, Patents
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Oligopoly
` Few sellers
` Airline Industry, Automobile Industry, PC Industry
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Monopolistic Competition
` Large no of sellers produce differentiated products
` e.g. Automobile Industry: size, performance, f uel economy,
safety
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Features of the four market structuresFeatures of the four market structures
Type of market
Number of firms
Freedom of entry
Nature of product
Examples Implications for demand curve
faced by firm
Perfect
competition
Very
many UnrestrictedHomogeneous
(undifferentiated)
Cabbages, carrots
(approximately)
Horizontal:
firm is a price taker
Monopolisticcompetition
Many /several
Unrestricted Differentiated Builders,restaurants
Downward sloping,but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electricalappliances
Downward sloping.
Relatively inelastic(shape depends onreactions of rivals)
Monopoly One Restricted or
completely
blocked
Unique
Local water
company, trainoperators (over
particular routes)
Downward sloping:
more inelastic thanoligopoly. Firm has
considerable
control over price
8/8/2019 Managerial Economics 8-9- Final
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Features of the four market structuresFeatures of the four market structures
Type of market
Number of firms
Freedom of entry
Nature of product
Examples Implications for demand curve
faced by firm
Perfect
competition
Very
many UnrestrictedHomogeneous
(undifferentiated)
Cabbages, carrots
(approximately)
Horizontal:
firm is a price taker
Monopolisticcompetition
Many /several
Unrestricted Differentiated Builders,restaurants
Downward sloping,but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electricalappliances
Downward sloping.
Relatively inelastic(shape depends onreactions of rivals)
Monopoly One Restricted or
completely
blocked
Unique
Local water
company, trainoperators (over
particular routes)
Downward sloping:
more inelastic thanoligopoly. Firm has
considerable
control over price
8/8/2019 Managerial Economics 8-9- Final
http://slidepdf.com/reader/full/managerial-economics-8-9-final 20/30
Features of the four market structuresFeatures of the four market structures
Type of market
Number of firms
Freedom of entry
Nature of product
Examples Implications for demand curve
faced by firm
Perfect
competition
Very
many UnrestrictedHomogeneous
(undifferentiated)
Cabbages, carrots
(approximately)
Horizontal:
firm is a price taker
Monopolisticcompetition
Many /several
Unrestricted Differentiated Builders,restaurants
Downward sloping,but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electricalappliances
Downward sloping.
Relatively inelastic(shape depends onreactions of rivals)
Monopoly One Restricted or
completely
blocked
Unique
Local water
company, trainoperators (over
particular routes)
Downward sloping:
more inelastic thanoligopoly. Firm has
considerable
control over price
8/8/2019 Managerial Economics 8-9- Final
http://slidepdf.com/reader/full/managerial-economics-8-9-final 21/30
Features of the four market structuresFeatures of the four market structures
Type of market
Number of firms
Freedom of entry
Nature of product
Examples Implications for demand curve
faced by firm
Perfect
competition
Very
many UnrestrictedHomogeneous
(undifferentiated)
Cabbages, carrots
(approximately)
Horizontal:
firm is a price taker
Monopolisticcompetition
Many /several
Unrestricted Differentiated Builders,restaurants
Downward sloping,but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electricalappliances
Downward sloping.
Relatively inelastic(shape depends onreactions of rivals)
Monopoly One Restricted or
completely
blocked
Unique
Local water
company, trainoperators (over
particular routes)
Downward sloping:
more inelastic thanoligopoly. Firm has
considerable
control over price
8/8/2019 Managerial Economics 8-9- Final
http://slidepdf.com/reader/full/managerial-economics-8-9-final 22/30
Features of the four market structuresFeatures of the four market structures
Type of market
Number of firms
Freedom of entry
Nature of product
Examples Implications for demand curve
faced by firm
Perfect
competition
Very
many UnrestrictedHomogeneous
(undifferentiated)
Cabbages, carrots
(approximately)
Horizontal:
firm is a price taker
Monopolisticcompetition
Many /several
Unrestricted Differentiated Builders,restaurants
Downward sloping,but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electricalappliances
Downward sloping.
Relatively inelastic(shape depends onreactions of rivals)
Monopoly One Restricted or
completely
blocked
Unique
Local water
company, trainoperators (over
particular routes)
Downward sloping:
more inelastic thanoligopoly. Firm has
considerable
control over price
8/8/2019 Managerial Economics 8-9- Final
http://slidepdf.com/reader/full/managerial-economics-8-9-final 23/30
Features of the four market structuresFeatures of the four market structures
Type of market
Number of firms
Freedom of entry
Nature of product
Examples Implications for demand curve
faced by firm
Perfect
competition
Very
many UnrestrictedHomogeneous
(undifferentiated)
Cabbages, carrots
(approximately)
Horizontal:
firm is a price taker
Monopolisticcompetition
Many /several
Unrestricted Differentiated Builders,restaurants
Downward sloping,but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electricalappliances
Downward sloping.
Relatively inelastic(shape depends onreactions of rivals)
Monopoly One Restricted or
completely
blocked
Unique
Local water
company, trainoperators (over
particular routes)
Downward sloping:
more inelastic thanoligopoly. Firm has
considerable
control over price
8/8/2019 Managerial Economics 8-9- Final
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B ARRIERS FOR PERFECT COMPETITION
Decreasing Production Costs
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PERFECT COMPETITION
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MONOPOLY
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OLIGOPOLY
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B ARRIERS FOR PERFECT COMPETITION
Barriers to Entry
y
Legal Restrictions
Patents
Franchise Monopoly
Import Restrictions
y High Cost of Entry
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B ARRIERS FOR PERFECT COMPETITION
Barriers to Entry
y
High Cost of Entry e.g Commercial Aircraft Mfg
y Advertising
y Product Differentiation
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M ARGINALREVENUE
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